Inflation data for December released by the U.S. Department of Labor showed that the overall CPI rose by 2.7% year-on-year, and the core CPI rose by 2.6% year-on-year. Both were unchanged from November and lower than market expectations. After seasonal adjustment, the CPI rose by 0.3% month-on-month in line with expectations, and the core CPI rose by 0.2% month-on-month, which was lower than expected. After the data was released, the financial market responded quickly. Spot gold rose by more than $10 in the short term, once reaching the $4,620 mark. Spot silver rose 3% intraday. The U.S. dollar index rebounded slightly after a sharp decline. The market's bets on the Federal Reserve's interest rate cut also heated up.

Statistical bias and replenishment effect caused by government shutdown

Behind this December CPI report lies the distortion of data collection caused by the government shutdown. The government shutdown last fall prevented the Department of Labor from conducting normal on-the-ground price collection work. When compiling the November CPI report, it had to use the "carry-forward method" to estimate some data, especially the rent indicator. This technical workaround treats October prices as fixed, which directly leads to the possibility that November inflation data may be artificially depressed. Economists have previously warned that the December data may "cover" the undervalued November data. Oscar Munoz, chief U.S. macro strategist at TD Securities, pointed out that due to the shutdown, the CPI will show a significant replenishment effect in December, but this replenishment is not complete, and the deviation in the rental data will not be completely eliminated until the report in April 2026.

This is because the Bureau of Labor Statistics uses 6-month panel data to calculate rent and owner-equivalent rent, and the impact of missing samples caused by the shutdown has a lag. Regardless of data disturbance factors, the price increase in December showed structural characteristics. Food and energy prices, especially electricity prices driven by data centers, have become the main driving force for rising CPI; commodity prices such as new cars, furniture and clothing have also rebounded, while service industry prices have been affected by holiday discounts and have rebounded relatively mildly. Seasonally sensitive categories such as out-of-town accommodation and air tickets have shown signs of recovery. In addition, the transmission effect of the Trump administration's comprehensive tariff policy on inflation has also begun to appear, but most companies have chosen to absorb part of the cost pressure themselves and have not fully passed it on to consumers.

The mismatch between the Fed’s wait-and-see attitude and market expectations

After the December CPI data was released, the market significantly increased its bets on the Federal Reserve to cut interest rates. Traders believe the Fed may not wait until after Powell's term ends in May before taking action, and while a June rate cut remains the most likely outcome, the probability of an April rate cut has risen to 42% from 38% before the data was released. However, there are clear differences within the Fed on the balance between inflation and employment, and the overall Fed still maintains a wait-and-see attitude. "Fed spokesperson" Nick Timiraos pointed out that the December CPI data is not enough to change the Fed's current stance. Officials hope to see more evidence before cutting interest rates that inflation is stabilizing and declining, while labor market conditions have deteriorated. The verification of the latter may require at least several months of inflation data support.

In fact, the Federal Reserve has cut interest rates three times in a row at the end of 2025 to cushion the weakening labor market, but the minutes of the December policy meeting showed that some officials are unwilling to ease further in the short term. The current U.S. economy is in a "split-screen" state: economic growth remains solid, but the labor market has cooled significantly. The average monthly employment growth rate in 2025 will hit a new low since 2003. This has gradually shifted the focus of the Federal Reserve from suppressing inflation to stabilizing employment. At the next policy meeting in January, the market generally expects the Federal Reserve to maintain its benchmark interest rate range of 3.50%-3.75%.

政策压力下的通胀与美联储独立性之争

Current inflation data and monetary policy decisions are always shrouded in strong political overtones. During Trump’s second term, the Labor Department and the Federal Reserve were under unprecedented political pressure. In August last year, Trump fired the Department of Labor commissioner on the grounds that "data was manipulated" without providing any evidence; last week, Powell directly accused the government of threatening criminal prosecution to pressure the Federal Reserve to cut interest rates. The issue of inflation has become a core political hot spot in the 2026 U.S. congressional elections, and high prices continue to erode Trump's support.

Although U.S. inflation in 2025 will be milder than expected and the rebound in inflation in the summer is limited, the prices of necessities such as groceries and insurance are still much higher than in previous years. The "last mile" of fighting inflation is still difficult, and the inflation rate is always higher than the Federal Reserve's 2% target. Regarding the inflation outlook in 2026, economists generally believe that it will show a tortuous downward trend, but it still faces multiple upward risks. RSM chief economist Joseph Brusuelas pointed out that the tax cuts in the "Big and Beautiful Act" will boost the spending power of high-income households, and large-scale investments by companies in the field of artificial intelligence may further push up inflation. Sung Won Sohn, a professor at Loyola Marymount University, bluntly said that the artificial uncertainty created by Washington may eventually lead to higher inflation. This pressure-based demand for interest rate cuts is not the right path to achieve low interest rates.

Economic trends under the interweaving of multiple variables

The release of U.S. CPI data for December revealed the true face of inflation caused by the shutdown, and also made the game between market interest rate cut expectations and the Federal Reserve's policy stance more intense. In the short term, the data replenishment effect and changes in the labor market will be the key to influencing the direction of policy; in the long term, tax cut policies, the AI ​​investment boom and geopolitical risks will all add variables to the inflation trend. In the struggle between political pressure and economic laws, how the Federal Reserve balances inflation control and employment stability will become the core key to determining the next direction of the U.S. economy.